RATES OF Treasury bills (T-bill) on offer today will likely climb as demand is seen to remain subdued as investors await rate hikes from the local and US central banks.
The Bureau of the Treasury (BTr) is offering P15 billion worth of T-bills on Monday. Broken down, the Treasury plans to raise P4 billion through the three-month papers, P5 billion via the six-month T-bills and another P6 billion in one-year debt.
Traders interviewed before the weekend said yields on the T-bills on offer today will pick up from the previous auction.
The Treasury partially awarded the T-bills it placed on the auction block last week, raising just P13.47 billion out of total tenders amounting to P21.9 billion.
At that auction, rates of the three-month, six-month and one-year papers rose to 3.549%, 4,353% and 5.137% respectively.
At the secondary market on Friday, yields on the 91- and 182-day papers were quoted at 3.5332% and 4.4497%, respectively, while the 364-day T-bills fetched a 5.1748% yield.
A bond trader said rates of the T-bills may climb by 10-15 basis points (bp) from the previous auction as demand is expected to diminish.
“Most likely the tendered volume will be smaller. It has been that way for about three weeks. The demand should be lower and yields should be higher,” the trader said in a phone interview.
Another trader concurred, saying the T-bills will likely fetch rates 5-10 bps higher from last week’s offer as investors await the policy actions of the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve later this month.
“It’s more of the monetary policy meetings, both of which the BSP and the Fed will be hiking,” the first trader said.
Earlier this month, BSP Governor Nestor A. Espenilla, Jr. hinted on another round of tightening, saying the central bank will “take strong immediate action” to respond to the emerging threats to prices and inflation expectations.
Inflation quickened to 6.4% in August due to higher food and oil prices. This was faster than July’s 5.7% and August 2017’s 2.6%.
Meanwhile, a September Fed rate hike has been almost fully priced in by the market as the benchmark 10-year US Treasury on Friday passed the 3% mark for the first time in more than a month at 3.003%, Reuters reported.
“For the BSP, it’s more of a 50bp hike, but a 25bp hike is also possible. Definitely, there would be a hike the way I see it,” the first trader said. “For the Fed, it’s priced in already.”
Aside from another round of tightening, the second trader attributed the climb in yields to the weakening peso.
The local currency has been hovering its 13-year lows for the past few weeks, closing Sept. 12’s session at P54.13 against the dollar.
“In terms of currency play given the weak peso, the tendency of the investors is to move out of short-tenored securities to sell pesos and to buy dollars,” the trader said.
The Treasury is raising P300 billion from the domestic market this quarter through auctions of securities, offering P195 billion in T-bills and another P105 billion in T-bonds.
The government plans to borrow P888.23 billion this year from local and foreign sources to fund its budget deficit, which is capped at 3% of the country’s gross domestic product. — Karl Angelo N. Vidal with Reuters